Here comes the decline

Panic selling of U.S. Dollar

Panic selling of the U.S. Dollar has begun in overseas markets and massive interest spikes are now hitting U.S. Treasury long-term bonds.

On Friday, the Federal Reserve has leaked information to several media outlets saying they are "puzzled" by a sudden, sharp spike in long term Treasury interest rates.

The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targeting the long rate.

Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed? That is exactly what is happening right now. The Fed has, in fact, lost control of the long rates because no one around the world trusts the US Government will actually pay back what they are presently borrowing.

Look at the facts:

The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, an economic stimulus package and sundry bank bailouts.

Investors worry this could erode the United States' cherished triple-A sovereign credit rating when Standard and Poors's on May 21 revised its outlook for Britain's triple-A status to negative from stable, blaming higher government debt.

The International Monetary Fund estimates that gross U.S. debt will reach 97.5 percent of the country's GDP in 2010, which is mathematically, "unserviceable." It simply cannot be paid back. There's no magic to this; it's straight math.

Investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. As such, they are bailing out of long term Treasuries.

In order to fund those long term Treasuries, the US Government must offer investors much higher interest rates. In fact, investors are demanding record high interest rates.

It's the Chinese, and other Treasury bond buyers who follow the markets, who have pulled away, to varying degrees from buying Treasury long securities. No one wants to be the last one holding bonds, where the new debt about to be issued is in the trillions.

China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.

The Fed didn't want to spook the world into thinking that it can't push long term rates down, so it leaked a story saying it is not trying. But as interest rates continue to climb for long term Treasuries, a panic out of long term Treasury securities is developing and will strike with an absolute vengeance this week.

The end of the current financial system, as we know it, is imminent. If you would have asked me even two weeks ago if collapse was imminent, I would have said it was highly unlikely, now I am saying it is not only possible, it is taking place.

Fed Chairman Ben Bernanke may be able to patch things up short-term, if he is lucky, but long term the U.S. financial structure is in serious trouble. There is just too much Treasury debt that needs to be raised. An international panic out of Treasury securities is taking place right now. Overseas markets are proving this.

The Fed will be have to be the major buyer as people worldwide dump Treasuries and the Dollar. This will ultimately mean record inflation; the likes of Zimbabwe which saw 231 Million percent annual inflation last July.

And keep this in mind, we have never seen a collapse of a currency like the dollar. Even the Wiemar Republic inflation which gave rise to Hitler can not serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to U.S shores than any country has ever experienced.

Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice.

Panic out of the dollar has begun. Even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. will cause a huge price inflation all on its own.

Those holding long-term Treasury notes will find them worthless, probably by the end of this summer. . . . . if the system lasts that long, which is no longer guaranteed.

It appears those who do not get out now will lose everything.

There is no stopping it.

Original post: http://turnerradionetwork.blogspot.com/2009/06/panic-selling-of-us-dollar.html